It started with a problem.
Formal employee evaluation systems developed in the early twentieth century alongside the growth of large industrial organizations. The U.S. military developed merit rating systems during World War I to evaluate officers systematically. Walter Dill Scott, a psychologist who worked with the Army's personnel classification system, developed rating scale methods that were later adapted to civilian industry. By the 1940s, formal annual performance reviews were a standard feature of large American corporations. The Society for Human Resource Management documents the development of performance appraisal as a discipline from its military and industrial origins through modern practice.
Historical sources below ↓Then something changed.
The formalized annual review changed the accountability structure between managers and employees. It created a documented record of expectations set at the beginning of a period and outcomes assessed at the end. This documentation changed how disputes about performance were handled: both parties could point to written agreements rather than relying on memory. It also created the condition for the review to fail: when the annual meeting was the only time feedback was given, it became an event disconnected from the actual work. The most consistent criticism of formal reviews is that they compress a year of feedback into a single high-stakes conversation.
What a builder can learn.
Our interpretation: the performance review solves a documentation problem but may not solve a feedback problem. Documenting expectations and outcomes at a scheduled interval is useful. Delivering feedback only at that interval is not. For a business builder, the question is whether a formal annual review is a supplement to regular conversation or a substitute for it. The answer determines whether the review is useful or anxiety-producing without effect.
A door still open.
A hypothesis worth testing: if a small business replaced one annual review cycle with four quarterly check-ins of the same total time, keeping the same documentation, would managers and employees report that the feedback was more useful and less stressful?
How much of what you say to an employee in an annual review could have been said — and acted on — during the year if a regular feedback structure had existed?
Follow the evidence.
History is sourced below. Business lessons are editorial interpretations; future possibilities are questions to test, not predictions.
Prepared from primary-source histories. First edition: 25 Sept 2026.